4 ms·

Can someone ELI5 why we need more than one fiat-collateralized stablecoin?

by marban 4y ago

petesergeant 4y ago
I think people are starting to think we don't even have one
542458 4y ago
The big reasons I could see would be that a) you don’t trust the people behind the first one (or the country they’re based in, etc) b) the underlying technology of the new coin is more appealing (tx/s, smart contracts, fees, etc) That said, this is all Wild West and trusting any of these vendors to actually do what they say seems very risky.
- marban 4y ago
  Seems like I trust neither a nor b.
- charcircuit 4y ago
  For b) you can get around that by creating wrapped versions of a more trusted stablecoin.
  - joosters 4y ago
    'Wrapping' a coin implies trusting some other person to not run away with them.
    - charcircuit 4y ago
      You can easily create a smart contract that can wrap and unwrap tokens. This requires no extra trust.
      - polygamous_bat 4y ago
        If they exist in two different chains, they need a bridge which is very centralized.
      - pigeons 4y ago
        Trust in the contract code and execution environment
- UncleMeat 4y ago
  You missed c) you want to make a lot of money by creating a new stablecoin and granting some percentage of it to yourself.
  - wiredfool 4y ago
    The ability to create money out of thin electrons can't be undervalued. If you’re 80% collateralized and 1% is fu money, there’s no defense against going to 78% collateralized if the code allows it.
    - zaphar 4y ago
      The code can't exactly prevent it unless your collateral is another crypto asset but then you can't peg against something like the Dollar because the crypto asset is guaranteed to fluctuate in price. Code can't enforce anything outside of the blockchain. It has to rely on an oracle and oracles can lie.
itsoktocry 4y ago
Because every second one is failing.
NovemberWhiskey 4y ago
... and why the most popular one (i.e. Tether) would be the sketchiest one? Stablecoins ought to be exceedingly boring and non-sexy. The key requirement ought to be "obvious, abundant and solid collateral", and nothing else should matter.
zivkovicp 4y ago
So whoever is running it can scam you out of your money.
dsr_ 4y ago
It's not a stablecoin if it doesn't have a fully audited 1:1 reserve. There aren't any of those, so the first one will be the only one. "stablecoin loses peg" is an absolute proof that it wasn't a stablecoin any more than tranches of CDOs made high-quality bonds out of junk.
- pru567 4y ago
  GUSD is fully backed and audited. https://www.gemini.com/cryptopedia/gusd-stablecoin-gemini-dollar#section-superior-regulatory-requirements-how-gusd-is-regulated https://www.gemini.com/cryptopedia/gusd-stablecoin-gemini-do...
  - dsr_ 4y ago
    If the statements made there are correct and complete then I agree that GUSD is an actual stablecoin.
- mschuster91 4y ago
  > "stablecoin loses peg" is an absolute proof that it wasn't a stablecoin any more than tranches of CDOs made high-quality bonds out of junk. In the end, it's statistics (assuming that 10 out of 100 similarly sized debts default, the expected value for such a CDO is 90% of the face value of all its debts) and the assumption there will not be any major market issues such as a bank run, a pandemic or war that suddenly increase the risk of debts going bad - or in this case, the stablecoin running out of the liquidity it needs to maintain the peg. CDOs and all forms of coins are essentially bets.
  - whimsicalism 4y ago
    Everything is a bet, even holding actual dollars.
ipnon 4y ago
People need a way to make dollar denominated transactions on blockchains. The Fed doesn't provide a way to do this natively, so companies have stepped in to solve the problem in various creative and fraught ways.
kwertyoowiyop 4y ago
"The answer to all your questions is money" - Don Ohlmeyer
phire 4y ago
It's profitable to launch new stablecoins.
- FabHK 4y ago
  I think fully collateralised stable coins (the only ones that are stable) are not very profitable, in particular in times of negative rates. The Swiss central bank, for example, charges 0.75% p.a. to hold onto your CHF. https://data.snb.ch/de/topics/snb/cube/snbgwdzid https://data.snb.ch/de/topics/snb/cube/snbgwdzid
dqpb 4y ago
Evolution

Can someone ELI5 why we need more than one fiat-collateralized stablecoin?

by marban 4y ago

Can someone ELI5 why we need more than one fiat-collateralized stablecoin?

petesergeant 4y ago

I think people are starting to think we don't even have one

542458 4y ago

The big reasons I could see would be that a) you don’t trust the people behind the first one (or the country they’re based in, etc) b) the underlying technology of the new coin is more appealing (tx/s, smart contracts, fees, etc) That said, this is all Wild West and trusting any of these vendors to actually do what they say seems very risky.

marban 4y ago
Seems like I trust neither a nor b.
charcircuit 4y ago
For b) you can get around that by creating wrapped versions of a more trusted stablecoin.
- joosters 4y ago
  'Wrapping' a coin implies trusting some other person to not run away with them.
  - charcircuit 4y ago
    You can easily create a smart contract that can wrap and unwrap tokens. This requires no extra trust.
    - polygamous_bat 4y ago
      If they exist in two different chains, they need a bridge which is very centralized.
    - pigeons 4y ago
      Trust in the contract code and execution environment
UncleMeat 4y ago
You missed c) you want to make a lot of money by creating a new stablecoin and granting some percentage of it to yourself.
- wiredfool 4y ago
  The ability to create money out of thin electrons can't be undervalued. If you’re 80% collateralized and 1% is fu money, there’s no defense against going to 78% collateralized if the code allows it.
  - zaphar 4y ago
    The code can't exactly prevent it unless your collateral is another crypto asset but then you can't peg against something like the Dollar because the crypto asset is guaranteed to fluctuate in price. Code can't enforce anything outside of the blockchain. It has to rely on an oracle and oracles can lie.

itsoktocry 4y ago

Because every second one is failing.

NovemberWhiskey 4y ago

... and why the most popular one (i.e. Tether) would be the sketchiest one? Stablecoins ought to be exceedingly boring and non-sexy. The key requirement ought to be "obvious, abundant and solid collateral", and nothing else should matter.

zivkovicp 4y ago

So whoever is running it can scam you out of your money.

dsr_ 4y ago

It's not a stablecoin if it doesn't have a fully audited 1:1 reserve. There aren't any of those, so the first one will be the only one. "stablecoin loses peg" is an absolute proof that it wasn't a stablecoin any more than tranches of CDOs made high-quality bonds out of junk.

pru567 4y ago
GUSD is fully backed and audited. https://www.gemini.com/cryptopedia/gusd-stablecoin-gemini-dollar#section-superior-regulatory-requirements-how-gusd-is-regulated https://www.gemini.com/cryptopedia/gusd-stablecoin-gemini-do...
- dsr_ 4y ago
  If the statements made there are correct and complete then I agree that GUSD is an actual stablecoin.
mschuster91 4y ago
> "stablecoin loses peg" is an absolute proof that it wasn't a stablecoin any more than tranches of CDOs made high-quality bonds out of junk. In the end, it's statistics (assuming that 10 out of 100 similarly sized debts default, the expected value for such a CDO is 90% of the face value of all its debts) and the assumption there will not be any major market issues such as a bank run, a pandemic or war that suddenly increase the risk of debts going bad - or in this case, the stablecoin running out of the liquidity it needs to maintain the peg. CDOs and all forms of coins are essentially bets.
- whimsicalism 4y ago
  Everything is a bet, even holding actual dollars.

ipnon 4y ago

People need a way to make dollar denominated transactions on blockchains. The Fed doesn't provide a way to do this natively, so companies have stepped in to solve the problem in various creative and fraught ways.

kwertyoowiyop 4y ago

"The answer to all your questions is money" - Don Ohlmeyer

phire 4y ago

It's profitable to launch new stablecoins.

FabHK 4y ago
I think fully collateralised stable coins (the only ones that are stable) are not very profitable, in particular in times of negative rates. The Swiss central bank, for example, charges 0.75% p.a. to hold onto your CHF. https://data.snb.ch/de/topics/snb/cube/snbgwdzid https://data.snb.ch/de/topics/snb/cube/snbgwdzid

dqpb 4y ago

Evolution